Financing in Denver>Question Details

Chops, Other/Just Looking in Denver, CO

what percentage of earnings vs. mortgage payment is accetable to qualify for a home mortgage

Asked by Chops, Denver, CO Wed Sep 15, 2010

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Hi Chops,

Thank you for your question! Most mortgage companies recommend that your mortgage be no more than 30% of your monthly income. What is acceptable to them is a question that your mortgage company can tell you.

If you have any other questions about the Denver real estate market, I would be glad to answer them for you.

Thanks again,

Ethan Besser


Ethan Besser
Broker Associate
Keller Williams - DTC
Cell: 303.856.8980
Fax: 303.539.4809
besser@kw.com
http://www.RealEstateColoradoNow.com

The Besser Choice in Real Estate!
1 vote Thank Flag Link Wed Sep 15, 2010
Chops,
You've received some good advice so far. I just want to add a couple of thoughts.

Please take very seriously what both Daniel and Scott have said. Even if you can qualify to borrow more, don't take on a larger payment than you feel comfortable with. Sit down with your lender and work backward from the total payment (principal, interest, taxes, and insurance) that you believe will work for you. That way, you can discover the price of the home you should be buying.

The Debt-to-Income ratio discussed up to this point has been the "Housing ratio", also called the "Upfront ratio." As mentioned here, current rule of thumb is to allow about one third of your monthly income for housing.

However, let me point out that there is a second Debt-to-Income ratio that is also important. It's called the "Total Debt" ratio, or "Back-end ratio." This is a number that represents other recurring debt, such as credit card debt, or car lease, or alimony payments. Because the Total Debt ratio includes the amount allowed for housing, this ratio is a larger number.

Years ago, long before the housing "boom", common Debt-to-Income ratios were 28% of income for Housing, and 36% for Total Debt. During the "boom", some lenders were allowing around 50% of income for Housing Debt and 70% for Total Debt. The reality is that most people just can't carry that kind of debt..

Mortgage expert Mark Hanson stated earlier this year that, even after loan modification, many borrowers who had mortgages dating from the boom years were still defaulting on their loans. He attributed this to Total Debt ratios that, even when adjusted, were still too high. Mark believes that the Total Debt-to-Income ratio should not be larger than 40%. Here's a quote from his blog:

"As a former career mortgage banker, I can guaranty that if DTI’s were brought down to around 40% or below that the re-default rate would fall sharply regardless of the equity position because it would be cheaper to stay than move and rent. And even if it was slightly more expensive to stay vs rent, most would still stay for a variety of reasons.

The most important factor at 40% DTI is that borrowers are much less at risk of mortgage default because they have disposable income each month to save, shop and live their lives relatively normally during their years of de-leveraging. "

So, Chops, I suggest you look at BOTH Debt-to-Income ratios with your lender, since you probably don't want to exceed 32% for the Housing (Front-End) ratio and 40% for the Total Debt-to-Income (Back-End) ratio. Even if a lender will allow you a Housing ratio of 40% or 41%, it will then push your Total Debt-to-Income ratio close to 50% of income. Do you really want to carry that kind of burden? Just some food for thought.

Good luck in your home purchase.

Warm regards,
Maggie Hawk, REALTOR
(386) 314-1149
Web Reference: http://mhanson.com/blog
1 vote Thank Flag Link Wed Sep 15, 2010
it depends on what kind of loan, your credit history, your down payment somewhere arond 36-45%
0 votes Thank Flag Link Wed Sep 15, 2010
Hello Chops!

I agree that the best is to have your payment be no more than 1/3 of your take home income per month. Here is a link to the Colorado Housing and Finance Authority's mortgage calculator:

http://www.chfainfo.com/homebuyer/Mortgage_calculator/Calcul…

I hope it helps!
0 votes Thank Flag Link Wed Sep 15, 2010
It is all automated these days, so it can be over 50% if there are compensating factors like great credit, larger down payment, etc. Just ask a lender to approve you and they will tell you (its all the same system called Fannie Mae desktop underwriter or LP for Freddie Mac loans).
0 votes Thank Flag Link Wed Sep 15, 2010
Chops,

The debt to income ratio of earnings vs. mortgag payments varies from approximately 30% for standard transactions to over 40% for some of the special government programs. Call my lender, Lonnie Glessner - 303-993-2367 and he will walk you through this process. Each loan product tends to have different guidelines. Please don't hesitate to contact me with any other questions or concerns about the process. Once you know what your parameters are you can have initial emailed home listings sent to you and then automated emails sent on a daily basis from your areas of interest until you find the 'right' home for you.

Robert mcGuire ASR
Realtor/Consultant
Your Castle Real Estate
http://www.rmcguire.yourcastle.org
0 votes Thank Flag Link Wed Sep 15, 2010
It really depends on the strength of your credit. The best thing you can do is talk to a reputable mortgage consultant. If you would like a referral, our preferred lender is one of the best and has always treated our clients with the highest integrity. Contact me and I can forward you his information.

Marianne Bandy
The Bandy Team
RE/MAX Professionals - Denver, CO
"From Our Heart to Your Home"

303-746-7799 cell
Web Reference: http://www.BandyHomes.com
0 votes Thank Flag Link Wed Sep 15, 2010
The rule of thumb is 32% DTI (debt to income). I tell my clients to figure out a monthly payment that is comfortable and base their home purchase with that in mind.
Web Reference: http://Real-estateco.com
0 votes Thank Flag Link Wed Sep 15, 2010
The ratios are subject to the strength of the borrower. A short fast rule of thumb is about a third of your income is a safe calculation. Keep in mind overall debt, FICO score, assets and prior home ownership are all taken into account and with a positive history can help push the earnings vs. mortgage payment ratio into the low 40% income allowed for monthly PITI. Hope this helps.
Web Reference: http://www.areapros.net
0 votes Thank Flag Link Wed Sep 15, 2010
I think the important question to ask yourself is how much is reasonable because they will approve you for more then you can afford. So work backwards. Start with a monthly amount that makes sense for you and then find out what that means in price.
0 votes Thank Flag Link Wed Sep 15, 2010
The DTI ( debt to income ratio) varies from lender to lender. The Housing ratio should be around 32% ( that's PITI- principal+interest+taxes+insurance), however I've gotten loans approved with a housing ratio as high as 41%. So it all depends on how strong the rest of the loan is.

Elena Ollick
Amerivest Realty
Faith Home Loans
239-206-4500
eo@oceanhomesrealty.com
http://www.andrewollick.com/realestateblog
0 votes Thank Flag Link Wed Sep 15, 2010
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